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Professor Davis G. Yee

Fall 2017

(415) 547-3803

dyee5@usfca.edu

LAW 501 – FEDERAL TAX ACCOUNTING AND TAX TIMING ISSUES

Syllabus

COURSE DESCRIPTION:

An examination of the concepts and principles underlying the annual accounting system of the federal income tax, including: the cash receipts and disbursements method of accounting, the accrual method of accounting, inventory accounting, carryovers, the claim of right doctrine, the tax benefit rule, deferred payment sales, original issue discount, and other time value of money issues.  This course will emphasize rigorous analysis of the Internal Revenue Code and Treasury Regulations.  It will be assumed that students are generally familiar with the issues covered in a basic Federal Income Taxation course.  

REQUIRED COURSE MATERIALS:

Text references are to James J. Freeland et al., Fundamentals of Federal Income Taxation: Case and Materials (18th ed. 2016). Supplemental reading items (other than sections of the Internal Revenue Code and treasury regulations) are available on Canvas. Sections of the Internal Revenue Code and treasury regulations should be reviewed as they are assigned in the syllabus or discussed in the Text. You may access the Internal Revenue Code and treasury regulations through your law school accounts for Westlaw.

EXAMINATION AND GRADING:

Your letter grade for this course will be based on (1) the completion of certain problems and (2) an anonymously graded final examination.

Completion of the problems counts towards 24% of your grade. The specific problems to complete per week (with the exception of Week 7) are noted in the syllabus. To get credit (of 4% per week), the answers to those problems must be submitted via Canvas by the stated deadline.

The examination counts towards 76% of your grade. It will be between three hours and four hours long and can be “checked out” during the following dates: December 4, 2017 and December 8, 2017. For the exam, you will be allowed to use the course materials and anything prepared by you (including class notes). A simple calculator may be used.

CLASS SESSIONS:

For those students able to attend live sessions, they will be at 101 Howard Street campus in San Francisco from 6:00-9:10 p.m. Pacific Time on Wednesdays without breaks in accordance with ABA Standard 310(b)(1) (see below). Otherwise, the hyperlink for an Echo360 recording will be posted on Canvas as soon as it is available, usually by the next business day. If you have any questions, Prof. Yee can be reached by email to arrange a phone conversation at other times.

HOURS OF WORK PER WEEK:

The American Bar Association standards for accrediting law schools contain a formula for calculating the amount of work that constitutes one credit hour. According to ABA Standard 310(b)(1), “a ‘credit hour’ is the amount of work that reasonably approximates: (1) not less than one hour of classroom or direct faculty instruction and two hours of out-of-class student work per week for fifteen weeks, or the equivalent amount of work over a different amount of time.” This is a 2-credit hour class, meaning that we will spend three hours and forty-five minutes together per week for seven weeks. All told, applying the ABA standard to the number of credits offered for this class, you should plan on spending eleven hours and fifteen weeks per week (three hours and forty-five minutes in class and seven hours and fifteen minutes preparing for class) on course-related work.

ATTENDANCE POLICY (NOT APPLICABLE TO ONLINE STUDENTS):

The School of Law requires students to attend classes regularly, complete assignments in a timely manner, and be prepared for and participate in class.  The law school attendance policy follows the ABA standard that students must attend at least 80% of the scheduled class sessions for any given course in order to receive credit.  If a student has exceeded the allowable class absences, she/he may be administratively withdrawn and/or receive a failing grade for the course. For full policy details, please see: (Sec. XIII)

AMERICANS WITH DISABILITIES ACT ACCOMODATIONS:

USF affords all students with disabilities equal access under the law. If you are in need of accommodation under the Americans with Disabilities Act (ADA) or similar enactment, you must contact the University Student Disability Services Office at 415.422.2613 or sds@usfca.edu to obtain the appropriate accommodation.

ACADEMIC DISHONESTY

Defined as engaging in any dishonest conduct in connection with any examination, written work, or other academic activity. The University of San Francisco takes academic dishonesty very seriously. You are responsible for knowing and adhering to the explicit details of our policy as listed here in the Student Honor Code: (pages 3-4)

WEEK 1

Learning Outcomes:

General understanding of the concept of tax accounting (as opposed to other types of accounting).

Understanding of the policies that underlie the promulgation of tax accounting rules.

Knowledge of the concept of a taxable year.

Knowledge of the requirements governing all methods of tax accounting.

Knowledge and understanding of the general rules of the cash receipts and disbursement method.

Recognize and differentiate the various doctrines for reporting income under the cash method.

Read Code §§ 441, 7701(a)(23) and (a)(24), 446(a) through (c), and 448

Read Treas. Reg. §§ 1.446-1(c)(1)(i), 1.61-2(d)(1), and 1.451-2

Read Text pp. 641-646

Read Burnet v. Sanford & Brooks Co., 282 U.S. 359 (1931)

Skim Text pp. 1075-1082

Read excerpt of Gregory v. Commissioner, 149 T.C. No. 2 (filed July 11, 2017)

Read Text pp. 646-659

Read Pulsifer v. Commissioner, 64 T.C. 245 (1975)

On Canvas, submit the answer to “Introduce Yourself” Homework Assignment by 12:00 noon Pacific Daylight Time, on October 22, 2017, a Sunday.

WEEK 2

Learning Outcomes:

Knowledge of the rules for reporting items of expense under the cash method.

Knowledge of the issues under the cash method regarding the deductibility of prepayments.

Knowledge and understanding of the all events test of the accrual method.

Ability to recognize the differences between the accrual method and cash method.

Knowledge of the general rule for reporting income under the accrual method.

Application of that general rule to items of doubtful collectability.

Application of that general rule to advance payments for services and for goods.

Read Text pp. 659-672

Read Commissioner v. Bradley, 56 F.2d 728 (6th Cir. 1932)

Read Zaninovich v. Commissioner, 616 F.2d 429 (9th Cir. 1980)

Do Problems 1-2 at Text pp. 672-673

Read Code §§ 446(a) and (c)(2), 451(a), and 448(d)(5)

Read Treas. Reg. §§ 1.446-1(c)(1)(ii), 1.451-1(a), and 1.451-5

Read Text pp. 673-690

Read Continental Tie & Lumber Co. v. United States, 286 U.S. 290 (1932)

Read Schlude v. Commissioner, 372 U.S. 128 (1963)

On Canvas, submit the answers to Problem 2(a) through 2(d) on pages 672 and 673 by 12:00 noon Pacific Daylight Time, on October 29, 2017, a Sunday.

WEEK 3

Learning Outcomes:

Knowledge of the general rule for reporting items of expense under the accrual method.

Application of that general rule to contested liabilities.

Understanding of the third prong of the all-events test for reporting items of expense.

Knowledge of forced matching of methods.

Read Code § 461(a), (f), and (h)

Read Treas. Reg. §§ 1.461-1(a)(2)(i) & (ii), 1.461-2, 1.461-4, and 1.461-5

Read Text pp. 693-704

Read United States v. Hughes Properties, Inc., 476 U.S. 593 (1986)

Read Mooney Aircraft, Inc. v. United States, 420 F.2d 400 (5th Cir. 1969)

Read Giant Eagle, Inc. v. Commissioner, 822 F.3d 666 (3d Cir. 2016), rev’g T.C. Memo. 2014-146

Read Dixie Pine Products Co. v. Commissioner, 320 U.S. 516 (1944)

Skim Veco Corp. v. Commissioner, 141 T.C. 440 (2013)

Do Problems 1-4 at Text pp. 704-705

Read Text pp. 706-708

Read Code §§ 267(a)(2), (b) & (c), and 467

Do Problems 1-2 at Text pp. 708-709

On Canvas, submit the answers to Problem 4 on page 705 and to Problem 2 on page 709 by 12:00 noon Pacific Standard Time, on November 5, 2017, a Sunday.

WEEK 4

Learning Outcomes:

Understanding of when inventory tax accounting must be used.

Understanding the purposes of inventory tax accounting.

Knowledge and understanding of the federal tax code provisions regarding inventory accounting.

Understanding the different cost flow assumptions for inventory, such as FIFO and LIFO.

Understanding the different objectives of financial accounting versus tax accounting of inventory.

Knowledge and understanding of the installment method of reporting income.

Understanding the installment method rules as they apply to related-party transactions.

Understanding of when and how to elect out of the installment method of reporting income.

Read Code §§ 471, 263A, 472, and 446(b)

Read Treas. Reg. § 1.446-1(c)(2)(i)

Read Text at pp. 691-693

Read Wilkinson-Beane, Inc. v. Commissioner, 420 F.2d 352 (1st Cir. 1970)

Skim Schedule C to Form 1040

Read Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979)

Read Text at pp. 895-910

Do Problems 1-3 at Text pp. 910-912

Skim Forms 6252, 8949, and 4797

Read Text at pp. 912-919

Do Problem 1 at Text p. 919

On Canvas, submit the answer to Problem 1 on page 919 by 12:00 noon Pacific Standard Time, on November 12, 2017, a Sunday.

WEEK 5

Learning Outcomes:

Understanding the difference between capitalization and deduction

Familiarity with timing issues related to deferred compensation and property transferred in connection with services

Read Text pp. 340-360

Do Problems 1-3 at Text p. 360

Skim Text pp. 724-738

Read Text pp. 931-938

Do Problem 1 at Text p. 938

On Canvas, submit the answers to Problem 1(a) through (c) on page 938 by 12:00 noon Pacific Standard Time, on November 19, 2017, a Sunday.

WEEK 6

Learning Outcomes:

Familiarity with the “time value of money” concept known as Original Issue Discount or OID.

Familiarity with the four federal tax provisions regarding OID.

Knowledge and understanding of what constitutes a “change in accounting method.”

Knowledge of how to change one’s method of accounting for tax purposes.

Calculate the adjustment amount under section 481(a) and the limitation under section 481(b)(1).

Read Text pp. 505-508

Skim Code § 1271, 1272, 1273, and 1274

Read Text pp. 921-930

Read Code § 446(e) and 481

Read Form 3115

Skim Rev. Proc. 2017-30

Skim Notice 2017-17, 2017-15 I.R.B. 1 (Mar. 28, 2017)

Read Von Euw & L.J. Nunes Trucking, Inc. v. Commissioner, T.C. Memo. 2000-114

Do the following Problem on Section 481:

Part (a):

Corporation X is a calendar-year taxpayer. In 2010, it changes from the cash receipts and disbursements method of accounting to the accrual method of accounting. As of December 31, 2009, Corporation X has $80,000 of accounts receivable (that have not been reported) and $30,000 of accounts payable (that have not been deducted). Compute Corporation X’s net § 481(a) adjustment.

Part (b):

Company Z has reported its income under the cash receipts and disbursements method since its formation in 2004. The IRS requires Company Z to change to the accrual method beginning in 2009. Company Z was subject to a flat rate of 30% from 2004 to 2008 and a flat rate of 35% in 2009. Company Z had $1,000,000 of taxable income (computed under the cash method) for 2007 and 2008. Company Z has $1,000,000 of taxable income (computed under the accrual method) for 2009. Assume that Company Z’s § 481(a) adjustment is $90,000. Calculate the limitation (if any) imposed by § 481(b)(1).

On Canvas, submit the answer to Part (a) of the Problem on Section 481 by 12:00 noon Pacific Standard Time, on November 26, 2017, a Sunday.

WEEK 7

Learning Outcomes:

Knowledge of the different types of taxable years (calendar, fiscal, and 52-53 week).

Knowledge of the type of taxable year that a particular taxpayer may adopt.

Understanding of the requirements for changing one’s taxable year.

Knowledge of some of the various exceptions to the annual accounting system, such as carryovers, claim-of-right (both judicial doctrine and section 1341), and the tax benefit rule (both judicial doctrine and section 111).

Knowledge of the duty of consistency

Read Code §§ 644, 706, 1378, 442, 1341, 111, and 172

Skim Form 1128

Read Text pp. 711-719

Do Problems 1-2 at Text pp. 719-720

Read Text pp. 720-723

Do Problems 1-2 at Text p. 723

Read Text pp. 738-740

Read Squeri v. Commissioner, T.C. Memo. 2016-116

ONLINE FINAL EXAM available to be “checked out” during the following dates: December 4, 2017 and December 8, 2017.

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